Still slim pickings

THE house on 16th Street in Santa Monica was new, big and, most important, for sale, but it didn’t do much for Damir and Anne Pevec.

“It’s a wham-bam contractor house,” said Anne of the lot-swallowing, 5,500-square-foot, $3.7-million home.

“It’s a spec house,” Damir added. “It’s a lot of home for the money, but it’s lacking in character.”

When the subject is real estate, the Pevecs have a habit of finishing one another’s sentences. It comes from 16 months spent looking for a new home this year and last. Although their $3-million budget is considerably higher than most households’, they are still confronting the same hard truth facing just about every other prospective buyer in Los Angeles County: There just isn’t a whole lot out there to choose from.

The number of homes for sale has been persistently low for almost five years, a cycle that bottomed out in the spring of 2004. Since the beginning of this summer, inventory levels in many neighborhoods have crept up a bit, and there is anecdotal evidence that some pockets have more on the market now that September is here, but the increases are not much by historical standards.

“Inventory is still low and the demand is still strong,” said Julie Lovett, the broker whose business, Lovett Co., had the listing on the 16th Street house. “Everyone has heard the predictions of a bubble, but I’m still seeing a lot of buyers in all price ranges.”

A confluence of events is responsible. People are staying put and renovating instead of trading up; long-term interest rates have been lodged near historical lows; many homeowners have borrowed heavily against their equity and spent the funds; and, as traffic congestion worsens and gas prices soar, those with homes close to their jobs aren’t willing to move if it adds to the commute.

By one common gauge of housing inventory, in July it would have taken 2.6 months to deplete Los Angeles County’s supply of houses if nothing new came on the market, according to the California Assn. of Realtors. That was down from 3.4 months a year earlier and 4.4 months in July 2000. In contrast, the county’s all-time high was 27.9 months in February 1991.

In another measure of the pinch, the Combined L.A./Westside Multiple Listing Service tallied just 1,891 single-family homes for sale in June (the last month for which data are available) in an area stretching from Silver Lake to Playa del Rey and Malibu. That’s down from several thousand on the market in the late 1990s.

For the Pevecs, who have definite ideas about where they want to live and a generous budget, the lack of available homes has been frustrating. The Pevecs, commercial real estate investors, raised their family in Malibu, then sold their longtime home to spend a year living in Europe. But they’ve been back and paying rent for nearly two years now. They are, they say, reaching the exasperation stage.

“We’ve seen every home in Santa Monica in our price range, every one,” Anne Pevec said. “Nothing is worth the price.”

The lack of homes for sale is a statewide phenomenon and another surprising characteristic of a real estate market that has for several years defied many experts’ predictions of a significant slowdown. Typically, an extended run-up in appreciation is checked at some point by a sell-off as homeowners try to cash in on their equity and trade up. The oft-cited imbalance between population growth and new-home construction in the region helps explain why prices have gone up but not necessarily why more people aren’t listing their homes for sale.

Leslie Appleton-Young, chief economist for the California Assn. of Realtors, said one major factor is that homeowners have been borrowing against their equity as never before.

“People who have been in their homes five or 10 years have probably refinanced at least once and maybe several times,” she said. “People have been taking money out, and they don’t have the down payment to trade up.”

Another reason is that with incomes rising slowly, many are loath to take on the higher tax burden that frequently comes with buying a new house. Added to that is the uncertainty about the cost of borrowing money.

“Interest rates are starting to come up a bit already,” Appleton-Young said. “People don’t want to give up their mortgage.”

Robert Leighton, incoming president of the Beverly Hills Greater Los Angeles Assn. of Realtors, offered another explanation for the dearth of inventory.

“People still consider L.A. a mecca and they don’t want to move out unless they are downsizing or retiring to another area,” he said. “People don’t want these long commutes. They are willing to pay more to stay close to where they work to cut their travel time.”

Those with equity are choosing to renovate instead of moving. “They’re calling in the contractors,” Appleton-Young said. “People are saying, ‘We’re going to stay in this house and make it the home of our dreams.’ ”

Low interest rates and low inventory have contributed to the unprecedented appreciation of single-family homes in the last few years. Los Angeles County homeowners have experienced 19 consecutive months of year-over-year median price gains in excess of 20%. That streak ended last October, with year-to-year gains moving down to an average 15% since then.

Even that modest dip was cited as evidence of a shift in the housing market. Then came July, when year-over-year appreciation was back above 20% in L.A. County, pushing the median price to a record $488,000, according to La Jolla-based DataQuick Information Systems.

In Los Angeles, it’s not just Westside home shoppers who are being affected by low inventory levels.

Maureen Kaye recently listed a four-bedroom, 1,480-square-foot home in the Valley Glen area of the San Fernando Valley for $649,000. She and some partners purchased the home a year ago for about $400,000 as an investment, spending a little more than $100,000 to fix it up.

Although the price is a bit high for the area, which used to be part of North Hollywood, Kaye said she is confident she’ll get close to what she’s asking.

“If you look in this neighborhood,” she said, “there are not very many homes for sale.”

Indeed, the Southland Regional Assn. of Realtors reported that in July there were 2,810 homes for sale in the San Fernando Valley, equal to a 1.8-month supply. Last July, there were 4,356 homes for sale.

“Our normal inventory would be five months’ supply and about 8,000 listings,” said Jim Ezell, president of the association. “There is basically no supply.”

The San Fernando Valley crunch is tightest among the most affordable homes, he said. Low interest rates have put more potential buyers in the market, meaning more competition for available homes.

“Any type of starter home or condo is selling very quickly,” Ezell said. “It’s a bit of a cliche, but someone is always grabbing the first rung of the housing ladder. There is high interest in getting into the market.”

Although supply has been increasing in the Santa Clarita Valley over the last few months, it also remains far below historical norms, said Realtor Tricia LaMotte of Keller Williams ZIP Properties.

“In Santa Clarita, we have about 1 1/2 months of inventory; normally we have five months of inventory,” LaMotte said. “I have a client who’s been on the waiting list at one development for six months. He’s lost all hope of ever getting in there. If you have only eight homes available and there are hundreds on the list, you’re going to lose out.”

Although many of the conditions that drove local inventory down to such low levels still exist, most real estate professionals believe that higher interest rates and slowing appreciation will gradually push the number of listings up in the months ahead.

“I think it will shift to more of a buyer’s market,” said Christopher Valenti, an agent with RE/MAX Beverly Hills. “We’re already seeing homes staying on the market a little longer, especially on the high end.”

For the Pevecs, that shift can’t come quickly enough.

When they sold their home and moved abroad, they took comfort in the outlook of many economic forecasters, figuring the red-hot market would have cooled by the time they returned and were ready to buy back in. They guessed wrong.

“We sold ourselves out of the market because prices have escalated so quickly,” Damir said. “We’ve been involved in bidding wars and we’ve seen a lot of junk. But there’s just not much out there. It’s a hard time to be buying a house.”

The Pevecs said that despite their strong desire to live in Santa Monica, which is near their grown children and centrally located for managing their commercial properties, they are weary of the hunt. They recently expanded their options a bit and put an offer on a house in Venice.

“It’s rough, but that’s what you have to do if you want to be in this market,” Anne said. “You have to suck it up and keep going.”

Darrell Satzman is a Los Angeles-based freelance writer. He can be reached at satzman@earthlink.net.